Complex mathematical models used by professional option traders are consistently outperformed by a simple average of the last 21 days' prices.
March 31, 2026
Original Paper
Regime-Dependent Delta Hedging with SVI-Calibrated Volatility Surfaces: An Empirical Analysis of SPX Index Options
SSRN · 6465741
The Takeaway
In modern finance, traders use 'SVI surfaces' to calculate risk, but this study found that this high-level math actually increases hedging errors by 9%. In most market regimes, a basic calculation of historical realized volatility is significantly more accurate than the most advanced industry-standard models.
From the abstract
This paper investigates which volatility input minimizes delta-hedging error for S&P 500 index options across different market regimes. I compare five volatility inputs for computing Black-Scholes hedge deltas: (1) flat at-the-money implied volatility, (2) strike-specific implied volatility from a calibrated Gatheral SVI surface, (3) 21-day close-to-close realized volatility, (4) 21-day Parkinson realized volatility, and (5) 21-day Yang-Zhang realized volatility. Using OptionMetrics data on